BVA9503688
DOCKET NO. 93-08 002 ) DATE
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On appeal from the decision of the
Department of Veterans Affairs Regional Office in Denver,
Colorado
THE ISSUE
Waiver of recovery of loan guaranty indebtedness.
REPRESENTATION
Appellant represented by: The American Legion
ATTORNEY FOR THE BOARD
Barry F. Bohan, Counsel
REMAND
The appellant served on active duty in the United States Army
from January 1955 to October 1956.
In May 1986, the appellant and his spouse purchased a town house
at 9994 West Cornell Place, Lakewood, Colorado for $60,000, using
a home mortgage loan which was guaranteed, in part, by VA.
38 U.S.C.A. §§3701 et seq. (West 1991). On his VA Application
for Home Loan Guaranty (VA Form 26-1802a), he listed his address
as 3334 South Ammons, #13-106, Lakewood, Colorado. On the Report
of Home Loan Processed on Automatic Basis (VA Form 26-1820) which
he signed on May 20, 1986, the appellant certified the he "intend
to move into and occupy said property as my home within a
reasonable period of time." The property was secured by a Deed
of Trust and Deed of Trust Note. The initial monthly payment was
made in July 1986.
In March 1988, the appellant contacted the Department of Veterans
Affairs Regional Office in Denver, Colorado (VARO). He indicated
that he was two months behind on his home loan payments. The
VARO employee advised the appellant to try to sell the house and
also discussed foreclosure time frames with him.
In April 1988, the lender filed a Notice of Default, stating that
the appellant had not made monthly home loan payments since
January 1988. The appellant was described as not responding to
collection efforts and had allegedly stated that the reason for
the default was because he was paying other bills. He allegedly
had refused to give information concerning his employment and
income to the lender. There was some indication that the reason
for the default was "renters not paying". In June 1988, VARO
attempted to contact the appellant by telephone and letter, but
received no response.
The house was sold for $43,700 at a trustee's sale in November
1988. In August 1989, the lender filed a claim under the loan
guaranty, which was subsequently satisfied, in the amount of
$23,637.10. In September 1989, VARO established the appellant's
loan guaranty indebtedness in the amount of $23,210.10.
Of record is a photocopy of a Financial Status Report (VA Form 4-
5655) dated November 29, 1992 and signed by the appellant.
Section VIII, Remarks, reads as follows:
"Please accept my offer for $10,000 to
clear this debt in full. I have not been
able to secure any kind of loan from a
financial institution due to my current
credit status. At this time I can only pay
$50.00 a month unless you will accept my
offer for $10,000 lump sum payment. I have
borrowed these funds from the church and my
family. Please accept my offer, this is
all I can borrow."
The appellant subsequently withdrew the offer of a $10,000 lump
sum payment. In his March 1993 Appeal to the Board (VA form 1-
9), the appellant stated:
"I didn't offer a compromise settlement as
stated....The statement that I borrowed
these funds from the Church and Family is a
gross lie."
In the meantime, VARO accepted the appellant's offer and, in a
February 1993 decision, the VARO Committee on Waivers and
Compromises granted the appellant a waiver of all of the
indebtedness except the $10,000 which he had offered. This
appeal followed. In connection with the appeal, the appellant
has made several statements to VARO, the Board, and his elected
representatives. In essence, he has blamed VA and the collection
agency for his problems. In his March 1993 appeal, he called for
an investigation into the matter.
In his March 1993 appeal to the Board, the appellant gave his
address as 3334 S. Ammons, #13-106, Lakewood Colorado, which the
Board cannot help but notice is the same address the appellant
lived in at the time he applied for the loan and promised to move
into the property on West Cornell Place.
A waiver of recovery of a debt may be authorized in a case in
which collection of the debt would be against equity and good
conscience. 38 U.S.C.A. § 5302(b) (West 1991); 38 C.F.R. § 1.964
(a)(2) (1993). "Equity and good conscience" involves a variety of
elements, including the elements of the fault of the debtor and
undue hardship, both of which have been raised by the appellant.
38 C.F.R. § 1.965 (a)(1),(2)(3) (1993). In essence, however,
"equity and good conscience" means fairness to both the appellant
and to the government.
Under pertinent law and VA regulations, however, no debt may be
waived under the standard of equity and good conscience if fraud,
misrepresentation, or bad faith is found to exist. 38 U.S.C.A.
§ 5302(c) (West 1991); 38 C.F.R. § 1.965 (b) (1993). In other
words, if fraud, misrepresentation or bad faith is found, the
elements of equity and good conscience are not for consideration,
since the granting of waiver of recovery is precluded by law.
"Bad faith" is defined in VA regulations as "unfair or deceptive
dealing by one who seeks to gain thereby at another's expense.
Thus, a debtor's conduct in connection with a debt arising from
participation in a VA benefits/services program exhibits bad
faith if such conduct, although not undertaken with actual
fraudulent intent, is undertaken with intent to seek an unfair
advantage, with knowledge of the likely consequences, and results
in a loss to the government." 38 C.F.R. § 1.965(b) (1993). In
general, "bad faith" implies actual or constructive fraud, or
neglect or refusal to perform some contractual obligation,
prompted not by honest mistake but by some interested motive.
Black's Law Dictionary 139 (6th ed. 1990). VA guidelines refer
to bad faith as a willful intention to either seek an unfair
advantage or to neglect or refuse to fulfill some duty or
contractual obligation. VBA Circular 20-90-5, (February 12,
1990). A determination of bad faith may be based on the
circumstances which led to the default and the foreclosure, as
well as the appellant's attitude toward contractual obligations,
and his actions or omissions with respect to avoiding
foreclosure, as indicated by the evidence of record.
In essence, it appears from the evidence now on record that the
cause of the default was that, instead of himself living in the
property which was subject to the VA loan guaranty as promised,
the appellant rented the property to his three sons, who failed
to make rental payments. It appears that the appellant expected
the government to pay for his failed investment. When collection
efforts were initiated, the appellant offered a compromise
settlement, which, after it had been accepted by VARO, he then
renounced.
The Board believes that the appellant should be given an
opportunity to fully and clearly explain the circumstances
surrounding the default, as well as his statements in the
November 1992 Financial Status Report, which he later recanted.
We also note that an unrevoked appointment of The American Legion
as the veteran's representative is of record, yet that service
organization has not participated in the claim on appeal.
The case is therefore REMANDED to VARO for the following actions:
1. VARO should contact the appellant, and
ask that he fully explain in detail, either
in writing or at a personal hearing, the
following:
a. whether he ever lived in the property
at 9994 West Cornell Place, Lakewood,
Colorado, which was the subject of his VA
guaranteed loan, and if so, the dates of
his residence;
b. the reasons for his default and the
efforts he took to prevent default;
c. the circumstances leading to the
settlement offer contained in the November
1992 Financial Status Report and his
reasons for later abrogating that
settlement offer.
VARO should take appropriate measures to
verify the appellant's statements,
including conducting a field investigation,
if necessary.
2. VARO should locate the original of the
November 1992 Financial Status report. The
original Financial Status Report should be
associated with the appellant's loan
guaranty file. VARO may also request a
current financial status report, as deemed
appropriate for readjudication of the
claim.
3. The matter of the representation by The
American Legion should be clarified.
After the above development has been completed, VARO should
readjudicate the issue of waiver of recovery of the indebtedness.
If the claim remains denied, the case should be returned to the
Board after compliance with all requisite appellate procedure.
The purpose of this REMAND is to procure clarifying data. The
Board intimates no opinion as to the ultimate conclusion
warranted, pending completion of the requested development. No
action is necessary on the appellant's part until he receives
further notice.
KENNETH R. ANDREWS, JR.
Member, Board of Veterans' Appeals
The Board of Veterans' Appeals Administrative Procedures
Improvement Act, Pub. L. No. 103-271, § 6, 108 Stat. 740, ___
(1994), permits a proceeding instituted before the Board to be
assigned to an individual member of the Board for a
determination. This proceeding has been assigned to an
individual member of the Board.
Under 38 U.S.C.A. § 7252 (West 1991), only a decision of the
Board of Veterans' Appeals is appealable to the United States
Court of Veterans Appeals. This remand is in the nature of a
preliminary order and does not constitute a decision of the Board
on the merits of your appeal. 38 C.F.R. § 20.1100(b) (1993).